CREDIT CONTROL - 24.02.2010

How to speed up international collections

International collections

While recovery from the current recession is proceeding painfully slowly in the UK, the picture is more positive overseas - especially in Asia. This means that many companies are aggressively ramping up sales efforts in recovering global markets to offset weak domestic performance. Of course, as every financial controller knows, a sale is not a sale until payment is received. Global credit presents its own special challenges, from country and foreign exchange risk to obtaining adequate credit information.

Time. Additionally, even if after thorough and careful investigation, credit has been granted to an overseas customer, international collections often present greater challenges than domestic ones - especially in terms of how long it typically takes to collect from overseas customers. So what can you do to speed up the time it takes your international customers to pay?

Getting started

Although many companies realise they have issues with the speed of collection from their international customers, some are unaware of the full extent of the problem.

Calculate DSO. To determine if this is the case in your company, calculate the average Days Sales Outstanding (DSO) on the international customers:

international debtors x 365

international turnover

You may be surprised by the figure. But a higher than expected number doesn’t automatically indicate a problem.

Compare the DSO. To find out whether there’s an issue, compare the DSO you’ve calculated with the terms offered. An international company with a DSO of 65 may not have a problem if the terms offered are net 60. If the problem accounts all seem to be in one country, it might be a good idea to calculate the DSO by country and then compare it to the terms being offered.

Using the information

Once you’ve determined that there’s a credit issue, you need to decide how to address it. It’s likely you’ll also need to discuss this with the sales department. Depending on the margins for your products, it may be necessary to raise prices in order to cover the costs of the delayed terms. There’s nothing inherently wrong with longer terms as long as everyone involved understands that this inevitably means more risk and lower profits. Once all the affected parties understand the costs and risks involved, decide what collection techniques can and should be used.

Tip 1. Prepare a report by country showing the due dates. Send reminder notices when the items first become due for payment. List a realistic number of target accounts to aggressively pursue each month to try to reduce the overdue accounts.

Tip 2. Consider using export credit insurance for international transactions. While this can be expensive, the cost can often be incorporated into the sales offer.

Tip 3. If you’ve a number of customers in one particular country, consider using a credit controller who speaks the same language. This person can then contact them by phone, which is always more effective than a fax, e-mail or letter.